Low-cost steel imports are testing local companies' resolve

An ongoing fair trade investigation could determine the future of United States Steel Corp.'s Lorain plant.

That's because 55% to 60% of the products made there are competing with low-cost tubular goods being imported from countries like South Korea.

David Britten, senior vice president of tubular goods at U.S. Steel, said the cheaper imports ultimately are driving down prices for domestic producers.

U.S. Steel is one of nine domestic producers seeking antidumping duties on a category of products called “oil country tubular goods,” which can be imported from South Korea, India, the Philippines, Saudi Arabia, Taiwan, Thailand, Turkey, Ukraine and Vietnam.

A preliminary ruling from the Department of Commerce in February found that eight of the nine countries in question — all but South Korea, the biggest exporter in the investigation — were “dumping” goods in the country, or selling them below a fair value. Goods from those countries now are subject to what essentially are preliminary duties in the form of cash deposits. A final determination is expected in July.

And in Lorain, where U.S. Steel recently spent millions on upgrades to serve the oil and gas markets, plant manager John Wilkinson fears the company may not realize the benefits of its investments if the investigation doesn't go their way.

“That's what scares us,” he said.

'Feeling a squeeze'

Some of the companies, like U.S. Steel, that petitioned for the investigation had been anticipating a boon from the shale sector, making oil and gas-related investments that officials now say could be wasted if foreign countries are allowed to continue selling their products at a lowered price.

At the Lorain Tubular Operations plant, for example, $200 million has been invested since 2010 for upgrades such as a new quench and temper facility, Wilkinson said. But the company started to see a decrease in order activity at the end of 2013, he said.

The product coming in from South Korea is being sold at about 30% of market value, Wilkinson said, and U.S. Steel can't compete with those prices.

“I can't even make it for what they sell it,” he said.

U.S. Steel laid off about 72 employees at the Lorain plant at the start of the year, Wilkinson said. The plant currently employs about 687 people. Chicago-based JMC Steel Group runs a tubular plant in Warren that's also been hurt by the low-cost imports coming into the country.

Randy Boswell, president of Energex Tube, a division of JMC and a party to the petition, said 35 to 40 employees have been laid off on the manufacturing side of the Wheatland Tube plant in Warren in the past 60 days.

The plant currently has about 140 employees. The company has invested $35 million in the Warren plant in the past six years on testing equipment and packaging and threading lines for the energy tubular market.

The plant had been getting a return on investment, but prices of oil country tubular goods have dropped 20% to 22% in the past 24 months, while raw material prices have stayed relatively flat or increased slightly, Boswell said.

“We're absolutely feeling a squeeze there,” Boswell said.

Repeating history

U.S. Steel is helping to lead the charge to bring attention to the investigation with a campaign that started with a May 5 rally in Lorain, co-sponsored by the United Steelworkers and hosted by Washington, D.C.-based Alliance for American Manufacturing.

This particular investigation is important for a few reasons, said Alliance for American Manufacturing president Scott Paul. The Department of Commerce's preliminary decision, excluding South Korea, indicates that it “is not necessarily persuaded” that the industry is being damaged.

The current situation pales in comparison to that when cuts were made at U.S. Steel's Lorain plant in 2009. Wilkinson said the plant was looking to increase employment in 2008 and 2009 because the market was growing. But China started dumping oil country tubular goods, seemingly out of the blue, he said.

“It was a drastic turn,” Wilkinson said.

The Lorain plant laid off about 200 employees within two to three weeks in mid-2009, Wilkinson said. At that time, he said, the plant employed about 471 people. After the industry won the trade case, business and employment started to slowly pick back up.

“We're trying to avoid that,” Wilkinson said in reference to the current case.

Alan Tonelson, a research fellow at the U.S. Business and Industry Council in D.C., said the steel industry has been the biggest user of trade law cases.

But he said that while it's encouraging to see the industry mobilizing resources and public opinion, overall, the country's trade law system has not served manufacturing at large.

The system is slow and reactive, he said. And he criticized the case-by-case approach.

“It's too episodic,” Tonelson said. “It's too piecemeal.”

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